Housing Finance:

Procedures and Costs for Developing San Diego Project Were Reasonable

RCED-97-190: Published: Jul 25, 1997. Publicly Released: Jul 25, 1997.

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Pursuant to a congressional request, GAO evaluated the San Diego Housing Commission's role in developing Knox Glen Apartments, focusing on the: (1) process the Commission followed to develop the project; (2) reasonableness of the project's costs compared with the costs of other new and existing multifamily projects in the area; and (3) impact of the project on the area's rental housing market and supply of affordable housing.

GAO noted that: (1) the process that the San Diego Housing Commission followed to develop Knox Glen Apartments was dictated, in large part, by its decision to revitalize the site and by federal funding and local requirements; (2) after purchasing the property and determining that the existing structures could not be salvaged, the Commission used federal funds to demolish these structures and constructed new affordable housing on the site; (3) the Commission met with neighborhood representatives, securing their approval of the project's design and ensuring that this design met the requirements of the city and of the Low-Income Housing Tax Credit Program; (4) in addition, the Commission designated a nonprofit corporation to manage the project's development and financing; (5) overall, the costs of developing Knox Glen Apartments were reasonable; (6) the project's site-specific costs were high but necessary to revitalize the site; (7) because these costs (for acquiring the land, demolishing the existing structures, and complying with local design and zoning requirements) were high and because the project consisted mainly of large units, the average per-unit cost was about $149,000; (8) the project's per-square-foot costs above the foundation ($39.55) were about average for new construction in San Diego at the time, and the project's per-bedroom costs (about $40,300) were relatively low for the California projects that received tax credits at the same time; (9) the construction of Knox Glen Apartments increased the supply of affordable housing in the neighborhood without adversely affecting other rental properties in the area; (10) all of the units at Knox Glen were rented within 2 weeks after the project was completed; (11) an owner of three sizeable low-income properties in the area said that he lost about six families to Knox Glen, but his vacant units were quickly filled; (12) also, since Knox Glen was completed, a private developer began to construct 23 single-family homes for first-time home buyers across the street; (13) according to the developer, he would not have built the project, and his bank would probably not have lent him the money for its construction, if the structures that formerly stood on the Knox Glen site had not been demolished; and (14) investigations by a San Diego County Grand Jury, a Select Committee of the San Diego City Council, and the Department of Housing and Urban Development's Inspector General found no abnormalities, malfeasance, or incompetence in the financing or construction of Knox Glen.

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